OAXACA, Mexico — When Gabino Cue took the reins last month as the governor of the poverty-stricken, conflict-prone southern state of Oaxaca, he expected a Pandora's box of ills to confront him.

After all, he'd toppled a candidate of the Institutional Revolutionary Party (PRI in its Spanish initials), an entrenched force that had ruled Oaxaca without interruption for 81 years and employed patronage, vote rigging and brute force to exert its power.

But even the savvy Cue found himself stunned at the condition of state government that he inherited after he took the oath of office Dec. 1.

"There were no computers," he recalled. "We found that the staff payroll didn't match who actually was working. ...The bank statements were out of balance. The state automotive fleet was in terrible shape."

On his way out the door, outgoing PRI Gov. Ulises Ruiz installed dozens of loyalists in state jobs with union protection even though they had no jobs to perform, Cue said. Ruiz also offered gifts to key allies, among them the head of the state electoral commission, for unexplained "services rendered."

It's unclear what happened to the missing records, vehicles and money allotted for unfinished public projects. Leaders of the civil society groups that supported Cue's election say the answers may never be found. The outgoing functionaries treated state assets as personal perks.

"This is how they managed the state, as 'my personal business,' " said Marcos Leyva Madrid, the head of Educa, a nonprofit institution that seeks to educate residents about civic rights.

Oaxaca, a rugged region in Mexico's southern indigenous heartland, is a tourism magnet with its majestic colonial churches, unique gastronomy and colorful Indian feel coming from the 16 indigenous groups in the state. But poverty afflicts the majority of the state's 3.3 million residents, contrasting sharply with its significant mineral riches and generating land and social conflicts.

The destiny of Oaxaca now rides on Cue's shoulders. But more is at stake than just the events in this southern Pacific coastal state.

"People are watching this because it has national repercussions," Leyva said.

How Cue copes with the challenges in Oaxaca may be a bellwether for national elections in 2012, when opinion polls say Mexicans may return the PRI to power at the national level, a dozen years after ending its seven decades of rule.

Cue came to office backed by an unwieldy coalition of left-wing, centrist and center-right parties, including President Felipe Calderon's National Action Party. A coalition of such breadth is unlikely at the national level. Yet without that sort of alliance, opinion polls show the PRI poised to capitalize on dissatisfaction over the slow economic recovery and drug-related insecurity to regain national power.

For the moment, though, the novelty of having a non-PRI governor in power in Oaxaca brings hopes for transparency and participation in state affairs.

Cue, who studied finance in Madrid for a postgraduate degree, received a McClatchy journalist on the second floor of the ornate governor's palace, fronting the tree-shaded main square of the city of Oaxaca. The sounds of marimba music floated in through open windows from the plaza below.

The location of the interview was emblematic for Cue. The previous governor had moved his office out of the palace, operating from itinerant locations, including his home or restaurants, avoiding the frequent and sometimes violent demonstrations that would erupt in the square and leaving the state government largely invisible.

"We can't understand how they functioned," Cue said, adding that the lack of computers in the state administration left a vacuum of information.

Cue said that state property, including relatively new cars, might have been auctioned off between the July 4 vote and when he took office.

The PRI party chief who lost to Cue in July, Eviel Perez Magana, denied that party functionaries had mishandled property or left the administration in poor shape.

"It is a grave error to search for the guilty without having proof at hand," Perez said. "Today we are in a grace period, but he (Cue) should get to work."

He said the state PRI "needs to outline new strategies" but wouldn't resort to the obstructionism in Oaxaca that he accused opponents of employing. "We're not going to do as they did, setting up highway roadblocks."

Of immediate concern to Cue is how he can wrest control of a government bureaucracy that owes loyalty to the PRI, calm unrest in 47 of the state's 570 municipalities where local elections were annulled because of irregularities and make headway in bringing services to the two-thirds of the state's residents who live in poverty.

In principle, the state budget shouldn't be a problem. Under the PRI, it ballooned more than fivefold since 1998 to the equivalent of $4.7 billion.

"We have a lot more hospitals than 12 years ago," Cue said, "but many of them are not working well. What good are these new hospitals if maternal mortality remains high? We have hospitals in Oaxaca without blood banks."

He also must sort out poorly built public projects, most notably the $6 million Guelaguetza Auditorium on Fortin Hill overlooking the city, a showcase project with a white canvas roof that was in need of repair before construction was finished.

Even more delicate will be the handling of probes into unsolved homicides and disappearances, including those of journalists and human rights advocates, most of them with a distinct political overtone. Critics say that past governors have tolerated, or even fomented, violence in the state as a method to exercise control.

Asked about the killings, Cue said, "There is a list of 300 homicides."

Seventeen occurred during five months in 2006 when a protest by state teachers evolved into a broader uprising calling for the annulment of Ruiz's 2004 election and his removal from office. Among those killed was Brad Will, an American activist and amateur journalist.

Early this month, Cue installed an activist lawyer, Erendira Cruz-Villegas, as his human rights commissioner.

Cruz-Villegas said the unsolved murders and disappearances were partially the result of efforts by the PRI to exert control through the use of force. But she said the use of coercion and violence wasn't limited to any single political faction.

"There have been other political parties that have generated violence. It seems to me that a culture of nonviolence, of peace and of dialogue is something we have to promote," Cruz-Villegas said.

Despite the naming of a human rights commissioner and new mechanisms to promote the peaceful resolution of land disputes, some victims of past conflict in Oaxaca take a wait-and-see attitude with Cue's administration.

"People say there will be a change," said Reyna Martinez, a refugee from land conflicts in the town of San Juan Copala. "But until we see real facts, we'll wait here."

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